Press Release No. 08/270

Press Release No. 08/270

An International Monetary Fund (IMF) mission led by Ms. Ana Lucía Coronel visited Tbilisi from October 28 to November 5, 2008 to conduct the first review under the 18-month US$750 million Stand-By Arrangement (SBA). The SBA was approved by the IMF's Executive Board on September 15, shortly after the armed conflict with Russia. Its aim was to support the government's policies to stabilize the economy, help bolster investor confidence, and rebuild gross international reserves as well as catalyze donors' support.

The mission confirmed that the end-September targets for net international reserves, net domestic assets of the central bank, and the overall fiscal deficit were met. This signals the authorities' continued commitment to macroeconomic stability.

Because of its fundamental strengths, the Georgian economy is well placed to recover from the August armed conflict. The authorities' actions to address the immediate consequences of the conflict were appropriate and the banking sector proved resilient.

Nonetheless, Georgia is not immune to the impact of the unfolding global financial turmoil. Foreign capital inflows, already affected by the conflict, may be further delayed.

In these circumstances, donor support will be very helpful in restoring stability. The donor conference that took place in Brussels in October 2008 resulted in pledges of about US$4.5 billion. This support, some of which will start flowing into the country soon, will help finance much needed social and reconstruction spending, and will contribute to the recovery of economic growth.

The mission discussed with the authorities the economic policies needed to attract private investment and to sustain economic growth. The authorities remain committed to support these objectives with sound macroeconomic policies and to manage donor inflows in an efficient and transparent way. Their continued efforts to limit the deterioration of the external accounts and further strengthen the financial sector should help maintain stability and restore growth.

The IMF mission will continue its close policy dialogue with the economic authorities and is scheduled to return to Tbilisi in end-January 2009 to conduct the second review of the program.